Tag: CMIE

In a 31 Mar 2018 Indian Express op-ed, PM advisor Surjit Bhalla accused critics of the government of purveying “fake news” in an effort to create a “political atmosphere helpful to the (weak) challenger”. He contended that “liberal elites” are trying to “change people’s perceptions”, and quoted Joseph Goebbels: “if you incessantly repeat a lie, the lie will become reality”. Bhalla, who writes op-eds and presumably tries to shape people’s perceptions, frequently labels those he disagrees with as Goebbelsian (here, here and here).

Bhalla’s op-ed starts with the self-evident point that the Bharatiya Janata Party continues to dominate Indian politics despite recent setbacks. He then moves on to a dubious comparison between the results of parliamentary by-elections that involve lakhs of voters with Rajya Sabha elections in which a handful of legislator votes can shift individual seats, and ends with the insinuation that critics of the government are somehow tools of Cambridge Analytica (clearly failing to understand how such firms work).

The piece is remarkable only as a demonstration of how much baseless blah it requires to make a case for this government’s economic policies.

Some claim that he had promised large-scale privatisation of the economy; since that hasn’t happened, Modi has failed. But Air-India is being privatised, again not thought conceivable, let alone possible.

This is an odd logic. If some were awaiting large-scale privatisation, why would they consider Air India’s sale to be inconceivable? It’s usually at the top of anyone’s list of firms to be privatised, not least because there’s no obvious justification for the government to own an airline. And it’s not as if the government hasn’t dropped plenty of hints in the past.

Just look at the PNB scam; but that started in the scam-scam years of the UPA. That doesn’t negate the fact that it continued under Modi. True. But what if the BJP takes the bold (and sensible) decision to get at the root cause of banking scams — begin to unravel Indira Gandhi’s decision to nationalise the banks — and large scale corruption?

What if, indeed. The fact is that the Finance Ministry has moved rather slowly on public sector bank reform. The Bank Boards Bureau (BBB) set up to improve bank governance has stated that “most of BBB’s recommendations have not received due attention from the government” (keep in mind the BBB could also be covering its backside in the wake of the PNB scam).

The point: wake us up when bank denationalisation actually happens.

The reality is uncertain because there has not been a national survey on jobs since 2011/12, the last time the NSSO conducted a nationally representative survey on employment… The average rate of job growth was 2.8 per cent in the BJP years 1999-2004. This is what the UPA inherited; average annual job growth between 2004 and 2011 was only 0.8 per cent per annum… When the reality is known (NSSO Employment survey for 2017/18), it is unlikely to show a rate of growth below the 0.8 per cent UPA rate.

Now we’ve entered dreamland. Surveys show that job growth has probably worsened, be they from the CMIE , the Labour Bureau or the RBI’s 26-industry KLEMS database which shows that employment “shrank by 0.1% in financial year 2015-16 and by 0.2% in 2014-15”. Remember this was when India’s GDP growth was relatively high and had yet to experience the disruptions of demonetisation and the GST.

The real shocker would be if the 2017-18 NSSO survey showed an annualised employment growth rate higher than 0.8%, pakoras or no pakoras.

The beginning of reforms in agriculture, major steps towards the delivery of benefits to the poor via the banking system, identification made possible via Aadhaar.

You have to love “beginnings” four years in. And what do we have to show? Coating urea with neem, distributing soil health cards and setting up an electronic National Agricultural Market cannot substitute for reforms to bypass politically-connected agricultural intermediaries. The government has yet to deal with spiralling subsidies, overbearing laws like the Essential Commodities Act and low investment levels in agriculture. And Bhalla is silent on the biggest irony: the Modi government has signalled that it will aggressively raise farm minimum support prices, something he regularly lambasted the UPA for.

As for the “delivery of benefits to the poor” via banking and Aadhaar, the Modi government inherited India’s entire payments infrastructure, 650 million Aadhaar enrollments, direct benefits transfer in LPG and 250 million BSBDA accounts that preceded the Jan Dhan Yojana. The NDA has done a commendable job on financial inclusion, but how come it wasn’t “reform” when the UPA did it?

The chorus emphasises leakages in delivery to the poor; about some poor families not getting their food rations because they did not have an Aadhaar card. The next time your friendly anti-reform chorus reminds you of this tragedy — yes, it is tragic — ask them what the leakage was in the food delivery system in the non-Aadhaar Jan Dhan era. That leakage was 50 per cent — yes, 50 per cent — of the food meant to be delivered to ration shops, and therefore the poor, disappeared into thin air. Actually, an air thick with corruption. That leakage is likely to be below 10 per cent today; if not, let the chorus provide us with facts on the magnitude of leakage today.

The air is thick with unsupported data, and it’s left to the poor “chorus” to verify such speculation. As it happens, PDS losses were closer to (a still high) 30% in 2011-12, with much of the leakage emanating from the volatile Above Poverty Line (APL) quota where recipients lacked a clear sense of their exact entitlement.

But assuming that leakages have dropped as Bhalla says, it remains to be seen how much Aadhaar accounts for this fall and how much the deletion of the APL category – mandated by the UPA’s 2013 National Food Security Act that Bhalla so vocally opposed – does. APL losses were an estimated 60-70% versus 20-30% in the Below Poverty Line category. More importantly, it seems inconsistent to rail against “fake news” while offering seemingly made up numbers.

GDP growth is on an accelerating path to the 7-8 per cent range; and inflation is some 500 basis points — yes 5 percentage points — below the 9 per cent level bequeathed by UPA II.

Here are the facts: the economy is currently growing no faster than it was four years ago. The annual GDP growth rate bequeathed by the UPA in 2013-14 was 6.6%. The Ministry of Statistics projects 2017-18 GDP growth at, um, 6.6%. Reassuringly, quarterly numbers show that growth has accelerated, from 5.7% year-on-year in Apr-Jun 2017 to 7.2% in Oct-Dec 2017. But then we need a higher baseline: GDP growth in the UPA’s final quarter of Apr-Jun 2014 — remember the first NDA budget was presented on 10 Jul 2014 — was 7.5% year-on-year.

Not too impressive.

As for inflation, no question that there has been a decline since the UPA2 days. Exogenous factors like global food and fuel prices explain much of this fall, but monetary policy also played a role. Here’s what one economist had to say on the topic:

No matter what the criteria, inflation has dropped, and dropped by a large magnitude between September 2013 and June 2016… While the government deserves some credit, the fact remains that this extraordinary inflation decline observed in India would not have been possible without Rajan’s leadership and his (correct) single-minded obsession with returning inflation to normal in India.

That economist praising the former RBI Governor (and Manmohan Singh appointee) Raghuram Rajan is of course Bhalla himself. This is not to say that the UPA’s 2010-13 spendthrift ways didn’t contribute to inflation. But from a purely policy lens, the decline in inflation had several causes, some of which were actually implemented by a chastened UPA.

The main point is this: there are many things that the Modi government has done right, be it setting up a robust process to resolve stressed assets or opening coal mining to private investment. But it has made several unforced errors, viz. demonetisation and a hasty GST rollout, and the results are showing. And if this defence is the best the PM’s advisor has to offer, no wonder there’s a rising “chorus” against the government’s policies.

What proportion of industrial projects are being held up by land acquisition challenges? A somewhat abstruse debate entered the mainstream after Rahul Gandhi cited Centre for Monitoring Indian Economy (CMIE) data (provided by the Finance Ministry) in a 12 May Lok Sabha speech:

Although I have argued elsewhere that the 8% figure may be an exaggeration in the context of Narendra Modi’s land amendments, the more common view is that it understates the extent to which land acquisition difficulties inhibit manufacturing in India, as Maitreesh Ghatak has explained most clearly in Quartz:

“It’s a classic underreporting problem,” said Maitreesh Ghatak, a professor at the London School of Economics who has studied land acquisition law in India. “There may be projects that never got started because they anticipated these problems. Also, the ones that did get started are likely to have been selected because the risk of land acquisition problems was low for them for whatever reason.”

This is a perfectly fair point, but it doesn’t necessarily follow that the 8% number is an understatement. Imagine a businessperson who is contemplating setting up a plant to manufacture wickets. One could easily imagine her investigating the feasibility of setting up such a plant, but giving up because she failed to procure land.

But one could also imagine her giving up because she couldn’t get a large enough bank loan, or a sufficient supply of workers, or even permission to cut trees to manufacture the wickets. To use Ghatak’s language, she may have chosen not to start because she anticipated any, or several of these problems. One simply does not have enough information about the universe of projects that were contemplated but not started, which doesn’t justify throwing out the data about projects that were started but subsequently ran into trouble. Because the ones that got started are also likely to have been selected (into the CMIE sample (pdf) of 804 projects) because the risk of labour, capital or market problems was low for whatever reason.

But let’s assume for argument’s sake that the number of unobserved projects delayed by land acquisition issues is in fact significantly high. It doesn’t follow that Modi’s land amendments will have any impact on their viability. The original 1894 land act was in operation until 31 December 2013, until which time the government was able to compulsorily purchase land for private companies without landowner consent or carrying out a social impact assessment, just as in the amended law. Yet land acquisition problems abounded. It would be ludicrous to argue that a law that was in operation for a single year — and excluded nuclear energy, mining, railways, national highways and petroleum pipelines from its purview — was responsible to delaying land acquisition in the prior decade.

Thanks to a Right to Information request to the Ministry of Finance by Venkatesh Nayak of the Commonwealth Human Rights Initiative, we have more detail regarding how many industrial projects are being held up by land acquisition difficulties. The data were collected by the Centre for Monitoring Indian Economy (CMIE) and analysed in Chapter 4 (PDF) in the first volume of the 2014-15 Economic Survey.

As low as the headline number of 8% appears, it may be an overstatement in the context of the government’s land acquisition amendments, since it includes government projects that do not fall under their purview. Remember that the hotly-debated consent clauses of the 2013 Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act applied only to land acquisition by the state on behalf of private companies (whether directly or via public-private partnerships). This means that the amendments will do nothing for public sector projects.

The 8% headline number comes from the list of 66 (of 804) projects that the CMIE has identified as held up by land acquisition difficulties, but 27 of these happen to be government-owned projects that will be unaffected by the land acquisition ordinance. Therefore the proportion of projects that stands to benefit from the Modi government’s land acquisition amendments is in fact 39 of 804, or 5% of the total.

If we take a stricter view and filter out real estate projects (townships, malls etc.), then the number of private industrial projects held up by land acquisition problems drops further to 26, around 3% of the total.

Now there is a view that the the observed number of projects could understate the effect of land acquisition difficulties on investment, since many projects will have been considered and dismissed without actually being launched. But this holds true of all factors of production (labour, capital, etc.), so it’s pretty hard to come up with a comprehensive and correctly weighted counterfactual.

So far as the current land act amendments are concerned, a quick scan of the list of 804 projects shows that many of them date back a decade (such as POSCO’s Paradip steel plant and Tata Steel’s Jharkhand plant). The 2013 land act came into force on 1 January 2014, which means that the consent and social impact assessment clauses can’t be really be blamed for the observed delays.